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Streamlining Financial Consolidation: Challenges and Best Practices
Financial consolidation involves combining the financial statements of multiple companies under the same ownership into a consolidated financial statement. The goal is to eliminate internal transactions and focus on real customer revenue for accurate reporting.
Challenges of Group Consolidation Accounting:
1. Outdated Methods and Inflexible Reporting
Using traditional methods like Excel spreadsheets and email-based data sharing can lengthen the consolidation process and increase the risk of errors. Upgrading to a reliable reporting system is crucial for streamlining the consolidation of large entities with subsidiaries.
2. Keeping up with Regulations
Staying updated with financial standards and complying with changing regulations adds pressure to reporting teams. Efficient management of inline iXBRL tagging can automate data analysis, reduce errors, and identify potential issues, especially for online tax return submissions.
3. Foreign Exchange Rates
Consolidating foreign subsidiaries requires converting local currency to the reporting currency. This process can be time-consuming but is essential for accurate reporting. Software solutions can simplify currency conversion and integration into the chosen reporting platform.
Common Financial Consolidation Challenges:
1. Low-Quality or Inaccurate Data
Manual data entry increases the risk of data inaccuracies. Automating consolidation processes helps improve data quality and reliability.
2. Inappropriate Tools and Systems
Using inadequate tools and systems that lack full integration hampers efficient consolidation. Investing in appropriate software solutions enhances the consolidation process.
3. Intercompany Transaction Adjustments
Accounting for intercompany transactions and making appropriate adjustments can be complex. Ensuring accurate recording and elimination of intercompany activities is essential for reliable consolidated financial statements.
4. Changing Planful Reporting Requirements
As reporting requirements evolve, keeping up with the changes becomes challenging. Regularly updating reporting templates helps align with the latest regulations and reporting views.
5. Data Manipulation and Fraud Risks
The risk of data manipulation and fraudulent activities increases during the consolidation process. Implementing secure software solutions minimizes these risks and ensures data integrity.
Utilizing Software for Efficient Consolidation:
Implementing suitable software solutions can significantly simplify the consolidation process. Planful, an end-to-end solution for FP&A and accountants, offers real-time consolidation at multiple levels. It provides a secure cloud collaboration tool, centralizes financial information, and enables immediate updates for last-minute changes.
Planful Consolidation facilitates comprehensive and accurate group consolidation accounting, ensuring compliance with regulations and delivering consistent reporting.
By addressing the challenges mentioned above and leveraging software solutions like Planful, businesses can streamline their financial consolidation processes. Adopting best practices and utilizing appropriate tools will result in fast, reliable, and accurate group consolidation accounting, reducing errors and enhancing financial reporting efficiency.
Learn more about our work with Planful, and click the button below to download the Planful case study, "Automating Manual Consolidation".